Managed Care - What Can We Learn?

"The principles of Jefferson are the axiom of a free society"

Abraham Lincoln

A Nonpartisan Economic, Health and Public Policy Research Foundation

Managed Care-A Failed Attempt at Market Reform

What Can We Learn?


The concept of managed care was based on a planned shift of ultimate power to individual consumers who were to have the choice and the information about cost and quality to make wise, economical selections. Armed with the tools of the marketplace and freed from the perverse incentives of third party payment and fee-for-procedure medicine, consumers and caregivers were going to reshape health care delivery and financing. But the conditions precedent failed, the stakeholders did not behave as predicted, and the result is not to anyone's liking.

Managed Care reform proved an imperfect mechanism for quality improvement.  The marketplace provided only disincentives to excel in caring for the very sick. An organization that managed the care of seriously or chronically ill patients exceptionally well risked attracting more than its actuarially predicted share of costly cases. This marketplace disincentive to develop skills at providing high-quality, cost-effective care in complex cases created suspicion among vulnerable patients. An opportunity to improve quality and control health care spending on the costliest cases was lost.

Some comprehensive quality initiatives fell victim to a market that emphasized cost-based competition. Unlike the prepaid group practice plans on which the managed care revolution was founded, many newly created plans that resulted from the insurer takeover of the managed care industry lacked the infrastructure to initiate quality improvement programs and intervene in the quality of care delivered by their widely dispersed independent providers. In fact it maintained third party payment and fee for procedure medicine.  Employers did not perceive quality as a critical issue and showed little inclination to direct employees to plans with the infrastructure to manage quality of care. In the absence of purchaser demand, competition on the basis of quality failed to materialize.

In the end Managed care failed to bring about effective market reform or result in a functional market. It failed for several significant reasons. Physicians were bypassed in favor of "corporate competition". For the most part the architects failed to implement their plan themselves but rather left it to the Government to implement. They botched the job. Then when it failed the existing insurance companies took over and used managed care for their own agenda which has brought them huge profits but given the rest of us a broken system. What we have now is a highly inefficient and complex "Rube Goldberg "system. Managed care reform created a big noise on the staircase but very little ever came down.

What can we learn from all of this?  First of all we must build on the progress we have made previously but not repeat mistakes.

In 1970, Ellwood stated:

"It is the indispensability of the physician's judgment that makes it unlikely that the price regulation approach can succeed. Only the physician can determine what care is necessary, and therefore, only he can eliminate unneeded expense. The physician cannot be policed to do so, but must be motivated by professional ethics, and by organizational arrangements which align . . . [the physician's] economic incentives with those of the consumer."

Physicians have an unavoidable role in controlling health care spending and achieving cost-effective clinical care. Their decisions have always dictated much of health care spending, and even if consumers assume a larger role in their own health care, reliance on medical judgment is inevitable in the complex cases that account for the majority of health care spending. In addition, physicians are in the best position to assess different patient preferences and functional needs and to educate patients about the incremental gains or risks associated with additional increments of clinical intervention. They are also going to be essential to any broad-based effort to collect medical outcomes data. Unfortunately Managed care left the physician out of the design; something we can not afford to do again.

We must return the market place back to the doctor- patient axis. Corporate competition never worked nor was it necessary. What is necessary, is for the physician to work exclusively for the patient with the patient’s best interest at heart, to guide the patient through our technologically complex, uncertain and expensive health care system to provide the patient with the best quality care at the lowest possible price by providing the patient with information concerning how various price options will affect the quality of his care so that the patient can make informed decisions. This model is more consistent with the way in which physicians have been traditionally trained and will be easier to implement than some of the new forms introduced by the managed care concept with could never be implemented.

Early experience with HSA-eligible high-deductible health plans reveals low satisfaction, high out-of-pocket costs, and cost-related access problems, Collins said. A survey conducted with the Employee Benefits Research Institute found that people enrolled in HSA-eligible high-deductible health plans were much less satisfied with many aspects of their health care than adults in more comprehensive plans:

Obviously HSAs in their current state of evolutionary development are inadequate. The concept of funneling insurance payments as well as tax free savings into the account allows the patient to pay directly for all health care without having to resort to post-tax out of pocket payments. There is a lot of merit with this model since it gives the patient an incentive to be a more careful and appropriate health care spender along with enough money that he perceives to be his own and for which he may have an alternative future use to be able to pay for all necessary and non-discretionary care at fair market value in a functional and competitive market.